By Pan-African e-commerce titan Jumia is facing a bleak future as the company continues to bleed money with no end in-sight.
The company has incurred significant losses of $2 billion since its inception, and says there’s no guarantee it will achieve or sustain profitability in the future.
This is according to Jumia’s annual report filed with the US Securities and Exchange Commission, whose primary purpose is to enforce the law against market manipulation.
In the report, Jumia reveals a list of aspects that could adversely affect business, which includes a lower internet penetration rate in Africa, disruptions of its technology systems, and security breaches due to hacking, viruses, fraud, and malicious attacks.
“Our markets pose significant operational challenges that require us to expend substantial financial resources,” says the company report, and adds that future profitability or sustainability is not a certainty.
Jumia operates a pan-African e-commerce platform, with a presence in 23 countries on the continent.
The platform consists of a marketplace that connects businesses with consumers, a logistics service enabling shipping and delivery of packages, and a payment service, JumiaPay, which, together with its network of licensed payment service providers facilitates transactions.
O the subject of its precarious financial position, the company says: “We primarily generate revenue from commissions, where third-party sellers pay us fees based on the goods and services they sell, and from the sale of goods where we act directly as a seller. Our revenue is, however, not sufficient to cover our operating expenses.”
Accordingly, it says: “Since we were founded in 2012, we have not been profitable on a consolidated basis. We incurred a loss of $183.7 million in 2020, a loss of $226.9 million in 2021 and a loss of $238.3 million in 2022. As of December 31, 2022, we had accumulated losses of $2.0 billion.”
Jumia adds: “There is no guarantee that we will generate sufficient revenue in the future to offset the cost of maintaining our platform and maintaining and growing our business.
“Furthermore, even if we achieve profitability in certain of our more mature markets, where e-commerce is rapidly growing, there is no guarantee that we will be able to break even and achieve profitability in other markets, where e-commerce adoption is slower.”
Operating expenses may continue to increase as it intends to expend substantial financial resources on acquiring and retaining sellers and consumers, growing and maintaining technology infrastructure.
“These investments may not result in increased revenue growth. If we cannot generate revenue that exceeds the costs of our business, we will not be able to achieve or sustain profitability or generate positive cash flow on a sustained basis and our revenue growth rate may decline,” says Jumia.
On growth prospects, Jumia says its business depends on an increase in internet penetration in Africa and other external factors, some of which are beyond our control.
The company explains: “If telecommunications services are not sufficiently available to support the growth of the Internet, response times could be slower, which would reduce Internet usage and harm our platform.
“If Internet penetration and digital literacy do not increase in our markets of operation, it could have a material adverse effect on our business, financial condition, results of operations and prospects.”
Concerns also exist about the platform being used to defraud customers. Jumia says failure to deal effectively with any fraud perpetrated and fictitious transactions conducted on its platform could harm the business.
Jumia says: “We have experienced improper practices, including practices engaged in by our independent sales consultants and a small number of our employees.
“For example, in September 2022, we discovered that an employee in Kenya manipulated certain vendor payment entries and misappropriated payments in 2021 and 2022. While the financial impact, in this case, was not material (below $150,000), any such illegal, fraudulent or collusive activities by our employees could have a material adverse effect on our business.”
ITweb
